Make a Money-Saving Start to 2011

This guest post is brought to you by Melanie Taylor, a debt expert from financial solutions company Think Money. Melanie has worked in financial services since 1993.

2010 saw an ongoing worldwide financial crisis – businesses going bust, countries struggling to control their debt levels and a large number of people finding their finances very difficult to manage. If you were one of the many people who experienced financial difficulties last year, chances are you’ll want to make a fresh start this year and have a financially secure 2011.

One of the best – and often simplest – ways to make sure you’re in control of your finances is by saving money. The more money you save, the more money you’ll have at your disposal if, for example, an emergency expense pops up. Well, that’s the theory anyway.

Saving money can be easy – if you’re going about it in the right way. There’s no point saving money here and there but spending more on other things. You won’t actually ‘save’ money by doing that. So, to help you start 2011 on the right foot, here are a few handy tips on how to make a money-saving start to the year:Keep your budget up-to-date
One of the most important aspects of your finances is your budget. If your budget isn’t accurate, your finances won’t be as straight as they could be. In simple terms, your budget is your monthly ‘spending plan’. But it’s a whole lot more than that.

Your budget can help you preempt any financial shortfalls you may be heading towards. It can also give you a ‘birds-eye’ view of your finances – allowing you to look at your monthly spending pattern (against your monthly income), which can be very handy if you’re trying to save money.

The easiest way to create your own budget is to split a piece of paper into two columns – the first will contain details about your monthly income (including your wages, benefits, etc.), while the second will detail all your essential expenses (everything you need to spend money on each month – from unsecured debts to utility bills and mortgage/rent payments).

Once you’ve got these columns filled in, you’ll need to subtract your total expenditures from your total income. This will leave you with your spare income – money you can spend on whatever you like. At this stage, providing your spare income is above £0/$0, you should be fine. This basically means you’re able to cover all of your expenses with your monthly income.

However, what if your income was to change? What if you ran into an unexpected expense? Would this have an effect on your ability to cover all your expenses? It might be best to cut out one or two ‘non-essential’ luxuries (i.e. things you can live without), so you can put aside some money each month.

The money you aren’t spending could be deposited into your savings account to gather interest. This money can then be used to cover the cost of any ‘financial emergencies’ you may come up against (like the boiler breaking down or your car needing emergency repairs).

Tackle debts in the most effective manner possible
If you’re carrying debts, get rid of these as soon as possible. However, the way you are currently repaying your debts might mean you’ll be in debt for longer than if you were to tackle your debts more effectively. We’re going to take a quick look at two methods of using your spare money to clear your debts faster. Then the decision is yours as to how you’d like to address them.

The first involves putting your extra money towards the debts with the highest interest rates before addressing the lower interest debts. This, as you may have noticed, can save you money – and that’s because you’ll be reducing the debts that are growing fastest first.

The second way you could tackle your debt can be very different from the first. You’ll be putting your extra money towards the smallest debts first. This will reduce the actual number of debts you have at a faster rate than the first method (which can be psychologically pleasing), but could cost you more in the long run as it doesn’t take into account which debts have the highest interest rates. Having said that, seeing your individual debts disappear more quickly can provide the motivation you need to keep on overpaying – and that’s a very important part of this strategy.

The bottom line is that you should choose the path that you feel would best motivate you to tackle your debts and gets your finances back on track. It doesn’t matter if the other option might be more effective for others if it doesn’t work for you.